Small Cap Strategist is published by Crystal Equity Research an independent research resource on small capitalization stocks. Follow along as we discuss the most recent trends in the small-cap sector, investigate interesting companies and pan a few not-so-promising stocks.

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Friday, December 07, 2012

Tesla Tempest

The
Wall Street Journal reported on Friday morning that Blackrock
has cut its position in electric sports car innovator Tesla Motors (TSLA:Nasdaq).Blackrock
is a widely known and respected fund manager.I imagine more than just a few investors grabbed whatever device might
be available at the time and punched in sell orders on the supposition that
smart money always know best.The really
smart investors had already looked at Blackrock’s filing with the SEC detailing
the reduction in its TSLA holding by a whopping 0.66% from the beginning of the
year. Most probably these investors had
already concluded it prudent to hold their hand.

Even
though Blackrock appears to be holding onto its position in Tesla Motors for
the time being, it does not mean that smart investors should not question Tesla’s
future.Recently the Wall Street Journal
also reported Elon Musk used the Twitter social platform to declare Tesla on the
cusp of positive cash flow.Musk’s
interests in Twitter aside, it was a bold statement.Tesla used $233.1 million in cash to support
operations over the twelve months ending September 2012.For clarity, that is $19.4 million per month
on average.Musk’s declaration might
suggest that the situation is improving.

However,
in the most recently reported three months, Tesla was using even more cash than
usual-an average $32 million per quarter.The Company started shipping its Model S in June 2012 and geared up for
volume production by investing in its supply chain.Tesla reported that it manufactured 350 cars
in the quarter ending September.

The
question is whether available cash will be enough to see the Company through
until cash starts coming in from selling those 350 Model S cars.Tesla has been able draw down funds from a
Department of Energy Loan.The Company
reported taking the last $33.3 million of the total $465.0 million DOE loan in
the third quarter.With the $85.7
million in unrestricted cash it had on its balance sheet at the end of
September 2012, and at the average cash burn rate, Tesla could have lasted
through the end of January 2012.

Musk,
who seems to be forever speaking into a reporter’s microphone, promised to take
as much as $1 million of the 6.9 shares Tesla offered in a follow-on offering
staged at the beginning of October 2012.The shares were sold at $27.89 per share.The stock has climbed steadily since, ending trading
the day before this post near $34.00 per share.Trading in TSLA shares may have temporarily run out of steam, probably because
shareholders like Blackrock are tempted to take profits by the rising price and
ample trading volume.I do not believe the
stock is not likely to challenge the 52-week high near $40 until investors hear
how many of those 350 Model S cars have been sold.

Neither the author
of the Small
Cap Strategist web log, Crystal Equity
Research nor its affiliates have a beneficial interest in the companies
mentioned herein.

1 comment:

It does not appear that their is yet a solid market for electric cars. I listened to a interview with the Elon Musk the ceo of Tesla Motors he was very upbeat about the prospects for the company. The company has been burning through cash at an alarming rate. Elon Musk down played this in the interview. I would never go near a company thats losing hugh amounts of money no matter how great thir products or services seem. The bigger a companies loses the higher the probability of insolvency.

About The Small Cap Strategist

Debra Fiakas, CFA is the Managing Director of Crystal Equity Research. Ms. Fiakas has a bachelor degree in economics from the University of South Dakota and an MBA from Thunderbird School of Global Management. Ms. Fiakas is a member of the Chartered Financial Analyst Institute.